Shadow Economy

Here is a puzzle. US unemployment remains stubbornly high by pre-recession standards at 7.6%. The overall workforce participation rate continues to fall. Real income growth remains flat. Yet retail sales go from strength to strength. Where is the purchasing power coming from?

Bernard Baumohl, chief global economist of the Princeton-based Economic Outlook Group, has an intriguing explanation. What we are seeing, he thinks, is a growing underground economy which, if it were possible to include it in the official statistics, would push unemployment down to around 5 per cent. That is where, historically, it ought to be at current levels of personal consumption.

“We’re not talking about illicit activity, like selling stolen goods or drugs,” Mr Baumohl wrote in a March research note that is attracting a lot of attention. “It’s largely work where millions of unemployed have managed to earn cash “off the books” by repairing computers, doing carpentry or handyman work, selling goods at flea markets, tutoring, housecleaning or using their car as a private delivery service.” Continue reading “Shadow Economy”


A stake through the heart of the Alien Tort Statute

In 1821, the captain of a US warship off West Africa ordered his crew to seize a schooner, La Jeune Eugenie, for transgressing Congress’ ban on the international transport of slaves.

The French owners demanded their boat back protesting they were not subject to American law. US Supreme Court Justice Joseph Story, an ardent foe of slavery, ruled against them, but not without misgivings. What gave him pause was the idea of the US assuming the role of global policeman.

“No nation has ever yet pretended to be the custos morum (guardian of the morals) of the whole world,” he wrote. Continue reading “A stake through the heart of the Alien Tort Statute”

Too Diverse

South Africa is Mandela and Marikana, miracle and mayhem, ubuntu and femicide,  Square Kilometre Array and Limpopo textbook scandal, King III and corruption, a member of BRICS but not, in the Goldman Sachs sense, a BRIC. It has an identity problem.

So does South African wine, certainly in the US where not only is the stuff still relatively hard to find, it comes in so many varieties and permutations that even knowledgeable imbibers are perplexed by it.

And that, says Wines of South Africa’s dynamic new US representative, Annette Badenhorst, is a big part of why it has struggled to gain a foothold here since sanctions were lifted in 1991. “There is not something you can distill out of our offering and say “Voila! This is South Africa!” We are so diverse, and that is what the trade finds confusing.” Continue reading “Too Diverse”

Can the US and China complement each other in Africa?

While China’s president Xi Jinping was non-interferingly inking deals in Africa last week on his first overseas foray as head of state, his American counterpart, Barack Obama, had four African leaders around to the White House for a pat on the back and a quiet chat about democracy, governance and how, in the US view, they lay the foundations for economic success.

The four were Senegal’s Macky Sall, Malawi’s Joyce Banda, Sierra Leone’s Ernest Bai Koroma and Cape Verde’s Jose Maria Pereira Neves. “The reason that I’m meeting with these four,” Mr Obama said, “is they exemplify the progress we’re seeing in Africa.”

The president did not have to give a reason. He could simply have said the four were exemplary, but he made the implicit explicit, in counterpoint to Mr Xi’s line upon his arrival in Tanzania: “China will continue to offer the necessary assistance to Africa with no political strings attached.”

“The African lion is galloping faster and faster,” said Mr Xi. Mr Obama chose his words more carefully. “Although Africa has actually been growing faster than almost every other region, it started from a low baseline and it still has a lot of work to do.”

That meant “building human capacity and improving education and job skills for rapidly growing and young populations”. It also meant “improving access to energy and transportation sectors”. How, the president wanted to know, could the US “continue to partner effectively with his guests on such issues”.

Mr Sall later told French radio he had suggested that Mr Obama “take a major initiative…as the Chinese are doing, as the BRICS are doing.” In his own public remarks, Mr Obama mentioned neither Mr Xi’s visit nor the BRICS summit in Durban.

A reporter raised them at one of State Department’s daily noon briefings, evidently hoping to advance the narrative of Sino-US rivalry in Africa. Did Mr Xi’s itinerary “raise your concern in terms of a closer Chinese and Africa tie.”

The Chinese, replied spokesmen Patrick Ventrell, “will continue to work with a wide number of different countries on their own interests, but we’ve got a positive agenda of our own.”

Reporter: “What is your agenda?”

Spokesman: “We want partnerships with all of these countries and we’re looking to promote democracy and sustainable development and really a new way forward for some of these countries to lift themselves out of poverty and to treat disease, and these are sort of our main priority.”
Reporter: “Is the United States in competition with China in Africa?”

Spokesman: “I don’t know if I’d phrase it that way.”

Senator James Inhofe, then the senior Republican on the Foreign Relations Committee’s subcommittee on East Asian and Pacific Affairs, last year asked the Government Accountability Office, a non-partisan watchdog agency, to compare US and Chinese economic engagement south of the Sahara.

Deborah Brautigam, author The Dragon’s Gift: The Real Story of China in Africa, hailed the GAO’s report when it was released in February as “by far the best single analysis I have seen”. So it is worth downloading from the web.

It is not prescriptive, but what it does make clear is that Chinese and US objectives in Africa are not intrinsically in conflict. Both share an interest in seeing Africa grow as a market for their goods and services and in this respect their differing approaches may complement each other. If anything, the relationship is increasingly symbiotic.

Allowing that Mr Obama is right about the links between governance, education, peace, public health and prosperity, Chinese business essentially gets a free ride from the emphasis the US and other “colonial” donors place on such matters. But it can also be argued that the infrastructure China is financing and building is creating opportunities for everyone else.

The report focuses on three countries, Angola, Kenya and Ghana, where it finds that direct competition between US and Chinese firms has been limited. China may be heavily invested in Angolan oil concessions, but US firms are the primary operators.

One sector where competition is stiff is information technology in Kenya, especially. Also, there is “anecdotal evidence” that US companies have simply ceded the field to China on major infrastructure projects. But there is also collaboration in this area. Chinese companies have won construction contracts in Ghana financed by the US Millennium Challenge Corporation. The US and Chinese Export-Import Banks last year agreed to partner in financing a water supply and road deal in Ghana.

And to the extent that African countries make use of African Growth and Opportunity Act’s third country fabric rule – under which clothing sewn in Africa from cloth sourced anywhere – Chinese firms benefit as suppliers of fabric and owners of the plants that turn it into polo shirts for US consumers.